Poet, Tim Johnson: Keep mandate for ethanol

Senator lauded for opposing efforts to curtail federal rule

Oct. 8, 2012

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South Dakota Sen. Tim Johnson was in Sioux Falls on Monday to promote ethanol amid calls to waive a federal mandate for the fuel.

Johnson toured the headquarters of Poet, one of the world’s largest ethanol producers. He met with company officials and representatives of the affiliated trade group Growth Energy, which gave him an advocacy award.

The occasion for the visit was a request in August by the governors of Arkansas and North Carolina to waive the Renewable Fuels Standard, a federal requirement to blend biofuels into the nation’s fuel supply. Amid one of the worst droughts in decades, critics are renewing calls that the policy drives up the cost of feed for livestock producers.

The issue is a prominent one in South Dakota, where more than one-third of the corn grown is used for ethanol.

Poet CEO Jeff Lautt said the request to waive the RFS is short-sighted politicking that would do nothing to alleviate the drought conditions. Johnson agreed.

“It would be a crushing blow to farmers in America,” Johnson said.

Johnson cited a recent study by the Food and Agricultural Policy Research Institute at the University of Missouri that examined the effects a temporary waiver might have on corn prices.

The analysis found that waiving the mandate would reduce corn prices only slightly through 2013 “because overall ethanol use and production are projected to be motivated mostly by crop and fuel market conditions in the current marketing year, not the RFS.”

In other words, it’s not clear that retail stations would immediately switch from ethanol blends to nonethanol blends, said co-author Wyatt Thompson, an assistant professor at Missouri.

“People would use almost as much ethanol today even if there was no mandate,” he said. “That’s our impression from studying the market, though there’s some uncertainty about that.”

The effect on corn prices would be felt more acutely the year after a waiver was instituted because the EPA allows blenders to carry over some of their blending credits, Thompson said. The federal standard requires more ethanol each year, so more carry-over credits could displace some of the additional corn used to make ethanol and its byproducts, bringing corn prices down the year following the waiver.

The EPA rejected a waiver request in 2008 by Texas Gov. Rick Perry, and Johnson said it doesn’t look like the agency will grant the waiver this time.

“But be on guard, I tell the ethanol people,” he said. “Anything can happen.”